Question 1

In the case of Equity Funding, the audit client

Accepted Answer

A)  Fraudulently recorded inventories that did not in fact exist 
B)  Inflated its earnings by recording fictitious sales of insurance policies 
C)  Moved liabilities off the balance sheet by using thousands of subsidiaries 
D)  Recorded inventory below cost, therefore understating costs of goods sold and overstating net income 
A)  Fraudulently recorded inventories that did not in fact exist 
B)  Inflated its earnings by recording fictitious sales of insurance policies 
C)  Moved liabilities off the balance sheet by using thousands of subsidiaries 
D)  Recorded inventory below cost, therefore understating costs of goods sold and overstating net income

Question 2

In the Vertical Pharmaceuticals case, Deloitte & Touche was sued because

Accepted Answer

A)  Vertical claimed the firm's false accusations of fraudulent conduct led to the withdrawal of another public company's planned acquisition of Vertical 
B)  Deloitte failed to issue an audit report on a timely basis thereby leading to the withdrawal by another public company's planned acquisition of Vertical 
C)  Vertical claimed Deloitte committed fraud in its audit of Vertical 
D)  Deloitte issued a modified opinion (adverse) on Vertical's financial statements thereby leading to the withdrawal by another public company's planned acquisition of Vertical 
A)  Vertical claimed the firm's false accusations of fraudulent conduct led to the withdrawal of another public company's planned acquisition of Vertical 
B)  Deloitte failed to issue an audit report on a timely basis thereby leading to the withdrawal by another public company's planned acquisition of Vertical 
C)  Vertical claimed Deloitte committed fraud in its audit of Vertical 
D)  Deloitte issued a modified opinion (adverse) on Vertical's financial statements thereby leading to the withdrawal by another public company's planned acquisition of Vertical

Question 3

The most relevant sources of civil liabilities for auditors failing to adhere to the requirements of the laws in carrying out professional obligations include all of the following except for:

Accepted Answer

A)  Securities Act of 1933 
B)  Private Securities Litigation Reform Act of 1995 
C)  Securities and Exchange Act of 1934 
D)  Sarbanes-Oxley Act of 2002 
A)  Securities Act of 1933 
B)  Private Securities Litigation Reform Act of 1995 
C)  Securities and Exchange Act of 1934 
D)  Sarbanes-Oxley Act of 2002

Question 4

The Private Securities Litigation Reform Act of 1995 applies the practice of ______ to auditor liability determinations.

Accepted Answer

A)  Risk assessment 
B)  Fraud triangle 
C)  Lowballing 
D)  Proportionate liability 
A)  Risk assessment 
B)  Fraud triangle 
C)  Lowballing 
D)  Proportionate liability

Question 5

Differentiate between the officers and directors duty of care, duty of loyalty, and duty of good faith. How do these principle responsibilities of officers and directors relate to the business judgment rule?

Accepted Answer

The duty of care for officers and direct

Question 6

The difference between an auditor's services regarding reports 10Q and 10K is

Accepted Answer

A)  The auditor provides "limited assurance" regarding 10Q and "reasonable assurance" regarding 10K 
B)  The auditor provides "reasonable assurance" regarding 10Q and "limited assurance" regarding 10K 
C)  The auditor provides no assurance regarding 10Q and "limited assurance" regarding 10K 
D)  The auditor provides "limited assurance" regarding 10Q and "absolute assurance" regarding 10K 
A)  The auditor provides "limited assurance" regarding 10Q and "reasonable assurance" regarding 10K 
B)  The auditor provides "reasonable assurance" regarding 10Q and "limited assurance" regarding 10K 
C)  The auditor provides no assurance regarding 10Q and "limited assurance" regarding 10K 
D)  The auditor provides "limited assurance" regarding 10Q and "absolute assurance" regarding 10K

Question 7

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because

Accepted Answer

A)  Its auditors did not follow the generally accepted auditing standards (GAAS) at the time 
B)  The independent audit of financial statements was not required at the time 
C)  Physical inspection of inventory was not performed by the auditors 
D)  The auditors were not independent and conspired with management to steal the funds 
A)  Its auditors did not follow the generally accepted auditing standards (GAAS) at the time 
B)  The independent audit of financial statements was not required at the time 
C)  Physical inspection of inventory was not performed by the auditors 
D)  The auditors were not independent and conspired with management to steal the funds

Question 8

The Securities Act of 1933

Accepted Answer

A)  Regulates the auditing of financial statements for publicly-traded companies 
B)  Limits the financial liability of independent auditors except in the case of gross negligence 
C)  Regulates the initial offering of securities 
D)  Regulates which services may be performed for a publicly-traded company by an audit firm 
A)  Regulates the auditing of financial statements for publicly-traded companies 
B)  Limits the financial liability of independent auditors except in the case of gross negligence 
C)  Regulates the initial offering of securities 
D)  Regulates which services may be performed for a publicly-traded company by an audit firm

Question 9

As a result of Scott London's actions to give inside tips about two audit clients, KPMG took each of the following actions except for

Accepted Answer

A)  Admitted London violated the firm's independence rules 
B)  Issued a modified audit opinion on the clients financial statements because of the adverse actions of London 
C)  Resigned from the engagements of the two clients 
D)  Withdrew its audit report on the two clients 
A)  Admitted London violated the firm's independence rules 
B)  Issued a modified audit opinion on the clients financial statements because of the adverse actions of London 
C)  Resigned from the engagements of the two clients 
D)  Withdrew its audit report on the two clients

Question 10

In the case of SEC v. Halliburton & KBR, the SEC charged Halliburton & KBR with

Accepted Answer

A)  Bribing Nigerian government officials to look the other way while the companies developed and presented fraudulent financial statements 
B)  Bribing Nigerian government officials in order to obtain construction contracts 
C)  Bribing Nigerian government officials to off-load merchandise at the country's piers 
D)  All of these 
A)  Bribing Nigerian government officials to look the other way while the companies developed and presented fraudulent financial statements 
B)  Bribing Nigerian government officials in order to obtain construction contracts 
C)  Bribing Nigerian government officials to off-load merchandise at the country's piers 
D)  All of these

Question 11

The Restatement (Second) of Torts Approach

Accepted Answer

A)  Expands an accountant's legal liability to third parties identified by the client as intended recipients of work 
B)  Limits an accountant's legal liability to only those parties with which it has a privity relationship 
C)  Limits an accountant's legal liability to only those parties that have been named by the client 
D)  Expands an accountant's legal liability to all possible users of the audited financial statements 
A)  Expands an accountant's legal liability to third parties identified by the client as intended recipients of work 
B)  Limits an accountant's legal liability to only those parties with which it has a privity relationship 
C)  Limits an accountant's legal liability to only those parties that have been named by the client 
D)  Expands an accountant's legal liability to all possible users of the audited financial statements

Question 12

The standard of due care requires that a director or officer

Accepted Answer

A)  Act in good faith 
B)  Exercise the care that an ordinarily prudent person would in similar circumstances 
C)  Act in a way that is in the best interests of the corporation 
D)  All of these 
A)  Act in good faith 
B)  Exercise the care that an ordinarily prudent person would in similar circumstances 
C)  Act in a way that is in the best interests of the corporation 
D)  All of these

Question 13

A student states that as long as the auditor has followed all applicable laws, then the auditor has been ethical. Do you agree? Why or why not?

Accepted Answer

The law represents the minimal moral sta

Question 14

With respect to the director duty of good faith, former Delaware Chancery Court Chief Justice Veasey defined good faith as

Accepted Answer

A)  Acting in the best interests of the corporation 
B)  An honesty of purpose that leads to caring for the well-being of one's constituents 
C)  Acting in the best interests of the shareholders person 
D)  Exercising due care in carrying out one's responsibilities 
A)  Acting in the best interests of the corporation 
B)  An honesty of purpose that leads to caring for the well-being of one's constituents 
C)  Acting in the best interests of the shareholders person 
D)  Exercising due care in carrying out one's responsibilities

Question 15

The legal term for the intent to deceive, manipulate or defraud is

Accepted Answer

A)  Nonfeasance 
B)  Misfeasance 
C)  Constructive fraud 
D)  Scienter 
A)  Nonfeasance 
B)  Misfeasance 
C)  Constructive fraud 
D)  Scienter

Question 16

The Securities and Exchange Act of 1934

Accepted Answer

A)  Limits the financial liability of independent auditors except in the case of gross negligence 
B)  Requires the filing of audited annual statements and reviewed quarterly statements 
C)  Regulates the initial offering financial statements of securities 
D)  Regulates which services may be performed for a publicly-traded company by an audit firm 
A)  Limits the financial liability of independent auditors except in the case of gross negligence 
B)  Requires the filing of audited annual statements and reviewed quarterly statements 
C)  Regulates the initial offering financial statements of securities 
D)  Regulates which services may be performed for a publicly-traded company by an audit firm

Question 17

The business judgment rule applies to audit committee acts in each of the following instances except for:

Accepted Answer

A)  Decisions on hiring the auditor 
B)  Approving audit services 
C)  Preparing the audit report 
D)  Responding to deficiencies in internal controls 
A)  Decisions on hiring the auditor 
B)  Approving audit services 
C)  Preparing the audit report 
D)  Responding to deficiencies in internal controls

Question 18

The SEC attempts to control insider trading in part by:

Accepted Answer

A)  Prohibiting officers and directors from buying stock of the company they work for/oversee 
B)  Prohibiting shareholders from buying stock of affiliated companies 
C)  Requiring officers, directors, and shareholders owning 10 percent of the class of equity securities registered with the SEC to file reports concerning their ownership and trading of the corporations securities 
D)  All of these 
A)  Prohibiting officers and directors from buying stock of the company they work for/oversee 
B)  Prohibiting shareholders from buying stock of affiliated companies 
C)  Requiring officers, directors, and shareholders owning 10 percent of the class of equity securities registered with the SEC to file reports concerning their ownership and trading of the corporations securities 
D)  All of these

Question 19

The SEC v. Zurich Financial Services case deals with:

Accepted Answer

A)  Zurich's use of finite reinsurance transactions to inflate improperly financial performance 
B)  Zurich's use of false insurance invoices to inflate revenues 
C)  Failure of Zurich's board of directors to carry out its fiduciary duties 
D)  Failure of the auditors to exercise the degree of care and professional skepticism expected in an audit
Essay Questions 
A)  Zurich's use of finite reinsurance transactions to inflate improperly financial performance 
B)  Zurich's use of false insurance invoices to inflate revenues 
C)  Failure of Zurich's board of directors to carry out its fiduciary duties 
D)  Failure of the auditors to exercise the degree of care and professional skepticism expected in an audit
Essay Questions

Question 20

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them?

Accepted Answer

A)  One week 
B)  One month 
C)  Three business days 
D)  One business day 
A)  One week 
B)  One month 
C)  Three business days 
D)  One business day

In the case of Equity Funding, the audit client

In the Vertical Pharmaceuticals case, Deloitte & Touche was sued because

The most relevant sources of civil liabilities for auditors failing to adhere to the requirements of the laws in carrying out professional obligations include all of the following except for:

The Private Securities Litigation Reform Act of 1995 applies the practice of ______ to auditor liability determinations.

Differentiate between the officers and directors duty of care, duty of loyalty, and duty of good faith. How do these principle responsibilities of officers and directors relate to the business judgment rule?

The difference between an auditor's services regarding reports 10Q and 10K is

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because

The Securities Act of 1933

As a result of Scott London's actions to give inside tips about two audit clients, KPMG took each of the following actions except for

In the case of SEC v. Halliburton & KBR, the SEC charged Halliburton & KBR with

The Restatement (Second) of Torts Approach

The standard of due care requires that a director or officer

A student states that as long as the auditor has followed all applicable laws, then the auditor has been ethical. Do you agree? Why or why not?

With respect to the director duty of good faith, former Delaware Chancery Court Chief Justice Veasey defined good faith as

The legal term for the intent to deceive, manipulate or defraud is

The Securities and Exchange Act of 1934

The business judgment rule applies to audit committee acts in each of the following instances except for:

The SEC attempts to control insider trading in part by:

The SEC v. Zurich Financial Services case deals with:

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them?

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Aicpa Code of Professional Conduct

Fraud in Financial Statements and Auditor Responsibilities

Earnings Management and the Quality of Financial Reporting

International Financial Reporting: Ethics and Corporate Governance Considerations

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Exam 6: Legal, Regulatory, and Professional Obligations of Auditors

In the case of Equity Funding, the audit client

In the Vertical Pharmaceuticals case, Deloitte & Touche was sued because

The most relevant sources of civil liabilities for auditors failing to adhere to the requirements of the laws in carrying out professional obligations include all of the following except for:

The Private Securities Litigation Reform Act of 1995 applies the practice of ______ to auditor liability determinations.

Differentiate between the officers and directors duty of care, duty of loyalty, and duty of good faith. How do these principle responsibilities of officers and directors relate to the business judgment rule?

The difference between an auditor's services regarding reports 10Q and 10K is

The executives of McKesson and Robbins Pharmaceuticals were able to steal about $2.9 million in 1939 because

The Securities Act of 1933

As a result of Scott London's actions to give inside tips about two audit clients, KPMG took each of the following actions except for

In the case of SEC v. Halliburton & KBR, the SEC charged Halliburton & KBR with

The Restatement (Second) of Torts Approach

The standard of due care requires that a director or officer

A student states that as long as the auditor has followed all applicable laws, then the auditor has been ethical. Do you agree? Why or why not?

With respect to the director duty of good faith, former Delaware Chancery Court Chief Justice Veasey defined good faith as

The legal term for the intent to deceive, manipulate or defraud is

The Securities and Exchange Act of 1934

The business judgment rule applies to audit committee acts in each of the following instances except for:

The SEC attempts to control insider trading in part by:

The SEC v. Zurich Financial Services case deals with:

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them?

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Aicpa Code of Professional Conduct

Fraud in Financial Statements and Auditor Responsibilities

Earnings Management and the Quality of Financial Reporting

International Financial Reporting: Ethics and Corporate Governance Considerations

Filters